I was reading a fascinating article online by Mr. Mustache Money about the shockingly simple math behind early retirement and the predictor function used is surprisingly simple, but it also made me wonder when I can retire.
Being a Civil Servant, I have an excellent pension plan (with a medical plan (for now, we shall see what comes in the future)). Still, I am effectively saving for my retirement by paying my pension premiums. I can (if I manage to keep a position until 65) retire with a full pension (i.e. the maximum I can earn in the pension system which is 70% of the average of my five best years of salary). Mr. Mustache’s calculations don’t take into account pensions, it is more a how much must I invest and save to then live on type of calculation (but it cleverly takes into account your ability to live with less income because you are saving too).
For me, the even easier question is when will I be able to make the following function true:
limit X -> 35 (X > 20 already)
X * B * 2% == Living Expenses for Year
Where B is my average salary over 5 years.
I will view any RRSP money I still have as slush funds for fun things, but my day-to-day expenses and living stuff had better be down to 70% of what they are now! The other fun variable in this is that my pension income can be split, so the equation is assuming Net Income, not Gross, since what matters is the folding green that ends up in my bank account, not some imaginary number that means nothing.
My natural suspicion is that unless I get a windfall of money somehow, I will continue to work for another 14 years (job & health willing), and I will then have to retire and I may then force myself to live on less. An exciting quandary, or maybe I will end up as a greeter at Walmart or at McDonald’s.
If anyone knows how to make the above equation look like an absolute Limit equation, feel free to comment.
I think it really all depends on what kind of life you want to live. If you don’t want to sacrifice anything or have any restrictions than you will have to work longer to build up your retirement nest egg. Lifestyle expectation is the formula that makes the most sense to me.
A very large IF, unfortunately.
My guess is that you may be able to make your equation work before age 65, but only if you’re debt-free.
Walmart here I come. We get kind of used to having extra cash on hand, and also to keeping busy and meeting people. Being a greeter at Walmart (or even better in a theatre) is not such a bad thing.